When the United States President signed the White House memorandum on January 20, 2025, withdrawing the United States from the OECD's global tax deal, many observers feared the entire Pillar Two edifice would collapse. Eleven months later, the OECD delivered its answer: an 88-page guidance package that introduces four new safe harbours, extends the transitional Country-by-Country Reporting (CbCR) safe harbour, and formalises the "Side-by-Side" (SbS) system agreed by the G7 and the US on June 28, 2025.

The SbS guidance, published January 5, 2026, effectively exempts US-parented MNEs and their foreign subsidiaries from the Income Inclusion Rule (IIR) and Undertaxed Payments Rule (UTPR) while preserving the 15% global minimum tax for all other in-scope groups.

The New Safe Harbours

The package introduces distinct safe harbour mechanisms that will materially reduce compliance burdens for MNEs that qualify:

• Simplified ETR Safe Harbour: A permanent mechanism replacing the transitional CbCR safe harbour, allowing MNEs to demonstrate compliance using simplified data rather than full GloBE calculations.

• UPE Safe Harbour: Effective from January 1, 2026, this replaces the transitional UTPR safe harbour (which expired at end-2025) and deems top-up tax for the Ultimate Parent Entity's jurisdiction to be zero under the UTPR where a "qualified UPE regime" is in place.

• Two additional operational safe harbours targeting specific structural and reporting challenges identified during the first years of Pillar Two implementation.

Implications for Transfer Pricing Documentation

For transfer pricing practitioners, the intersection of Pillar Two with existing TP rules creates a dual-layer compliance obligation. MNEs must now ensure that intercompany pricing not only satisfies the arm's length standard in each jurisdiction but does not inadvertently suppress the effective tax rate below 15%, triggering top-up taxes under GloBE.

Critical - The SbS package notes that none of its rules affect years 2024 and 2025. MNE groups should continue their Pillar Two compliance activities for those prior years as originally planned. Certain SbS rules may have retroactive effect only from January 1, 2026.

What MNEs Should Do Now

Tax teams should conduct a full Pillar Two impact assessment specific to their transfer pricing methodology, model the effect of the simplified ETR safe harbour on their entity-level calculations, and engage proactively with jurisdictions that have enacted domestic minimum taxes to understand how local Qualified Domestic Minimum Top-Up Taxes (QDMTTs) interact with their TP positions. The transitional CbCR safe harbour, previously set to expire at end-2026, has been extended by one year providing additional runway for groups still building their compliance infrastructure.